tv [untitled] April 13, 2011 1:00pm-1:30pm PDT
we will be joined by supervisor chiu later. >> if you wish to speak during public comment, please present a speaker card. supervisor chu: colleagues, before we call the items, can we have a motion to set excuse supervisor mirkarimi? without objection? thank you. and item number one? >> item number one, a hearing to review the joint report, three- year budget projection for general fund supported operations fiscal year 2011-2012 through fiscal year 2013-2014. supervisor chu: thank you. >> good afternoon, ben rosenfe
ld, controller. all three budget office's produces on an annual basis. we all get together at this time and repair a consensus projection going forward of the city's finances. we issued the report last week. i have copies of the report on the desk behind me, as well as copies of the power point presentation we will talk through briefly today. to start with, at the highest level, looking ahead in the general fund, we see an project estimates of $306 million shortfall in the coming fiscal year, followed by growing deficits in the years beyond, $480 million in fiscal year 2015, but and higher thereafter.
the number for the coming year, " $306 million, is down modestly from what the mayor had issued previously. there is some improvement, but in future years, this ongoing and balance between projected revenues and expenditures is cause for concern. like any report, this relies upon projections, assumptions, and our estimates in early years will be more precise than in future years. it in all cases, there are policy choices that the mayor and board will make to reconcile these budgets to change these numbers, which the charter requires us to prepare a balanced budget each year. some of the key assumptions, first, generally speaking, the report projects a modest recovery in our local economic
picture over this three-year horizon. we have hit bottom and our local economy and have begun to see some modest growth. to the extent that the recovery is more robust and faster than what we are assuming, these numbers will improve. to the extent we see additional said the downturn in the later years, the projections will material affect the numbers down. the report also assumes constant service levels. this is based upon the current year budget. it assumes no major changes to service levels, number of employees, nonprofits, and the like. obviously, as the budget is balanced, that will affect future numbers. the report assumes no change and the labor contracts, and the open labor contracts, medicines cpi. there negotiated -- it assumes
the cpi. they are negotiated on a regular basis, and the ultimate outcome of the negotiations are known. lastly, the one that has the potential to change the most is the assumption regarding the state budget. the state of california funds just over 15% of the general fund budget and we are heavily reliant on state funding, in particular for health and human services and county jail functions. the ultimate impact of the state's budget is not known to us, given the fact the state has yet to not adopt a budget for the coming year. we're estimating a loss for the state, which is a preliminary estimate. this puts revenues and use is in big buckets and tries to tease out some of the trends that we
see. on the revenue side, we see an project growth every year of the 3 a-year horizon. and more robust growth of $102 million the year after that. we're seeing revenue growth in the picture. however, this slide illustrates we also project expenditure pressures to outstrip available revenues during this time. $344 million in estimated cost increases, an additional $208 million the year after, $264 million the year after that. every year, we see expenditures growing in order of magnitude greater than revenue growth. within the expenditure side, it is a mixture of things driving that. it is a mixture of employee- related costs, wages and benefits. city-wide expenditure pressures
on capital, debt, and other city-wide adjustments, at a whole host of other department alisa specific details which are outlined it -- departmentally specific details which are outlined letter. supervisor chu: if we see no change in the assumptions. to be true and are no changes on the expense side, we expect deficits the next three years, basically. >> yes, yes. if you take that picture and display it graphically, which is what we project as revenue growth reverses' expenditure increase and how that drives the numbers, this is a depiction of that. geographically, modest revenue growth in each year of the projection, but expenditure growth of a much greater magnitude. we always have questions about
what effect a more robust recovery would be on the numbers. i think it is fair to say that at least our office cannot imagine a recovery where revenue growth in any year of this projection would be at the level of projected expenditure increases. it will not be a shortfall that we grow our way out of, absent policy changes. the projections here differ somewhat from our expectations following the dot com bust, where we saw today v-shaped downturn, we lost a revenue -- a lot of revenue quickly and we gained revenue quickly as well. at the moment, we're looking at a more gradual, long-term recovery. digging through component pieces, in terms of fund balance and reserves the coming fiscal year, where roughly even, compared with the current year budget.
that is the result of our projected year-end fund balance for this current fiscal year improving slightly compared with what was assumed. there is a positive $10 million gain, offset by $12.3 million in losses because the rainy day reserve will the longer be available in the coming year, given the revenue growth. we're not protecting we would be in the charter range that allows a withdrawal of any reserve, as we had assumed in the current fiscal year budget. these numbers will be updated. at our office will provide an update for the mayor and the board at the end of may for the current imbalance of the current fiscal year and that will change these numbers. in terms of the annual the recurring revenues, it is about $37 million of growth in the coming fiscal year, driven heavily by property-tax improvement and property
transfer tax improvement, although there is much more detail in the report. on transfer tax, it was approved an increase in the transfer tax rate on large commercial transactions. over 10 years, we estimated that would bring in approximately $30 million per year, although it is highly cyclical. that was not to send in the current year budget and we see improvement and transfer tax because of the rate increase and also because we have begun to see a bit of a pickup in commercial real estate market and san francisco. we're seeing large properties turnover and change hands for the first time in a couple years. the other bright spot on the revenue side is the property tax base. the property taxes are the largest source of revenue in the general fund, just over $1 billion. unlike any other county in the
state, san francisco has not experienced a decline and our property tax revenue stream, which is one of the things that has been holding us up. with continued to see and assumed a modest growth in property tax going forward. that is offset by the likelihood we will begin to pay out and need to set aside money to pay out appeals that have come in and we have talked about before from property owners for changes in assessed value. those are the two good pieces of revenue news looking forward. on the negative side, we have the losses of two major time- limited revenues that were used to balance the career budget. as we are all aware, the stimulus bill approved by congress and president several years ago has expired. at that provide it is significant money to the general
fund to balance the budget, $47 million. those funds will not be available to us next year. they expire and we have to absorb that loss. at the bottom of this page, there is the hospital fee. we talked about this a lot during last year's budget process. $88 million of this one time, time-limited revenue was assumed that the current year budget, and that program is scheduled to expire. we had it to major losses of revenue, one from the state, one from the federal, offsetting the majority of the good news we're seeing here and our local revenue picture. in the middle of the page, there is the conversations about the state again, these projections assume $30 billion of losses and the ultimate impact from the state may well be unknown to us. until well after we adopt a budget luckily. supervisor wiener: could you talk about that state
assumption? i know that in years past we have underestimated, sometimes we overestimate. what is the assumption? >> it is a very rough guess, based upon the amount the city set aside in the current fiscal year. we assumed a $30 million of state losses in the current fiscal year. we assumed the same amount next year. looking ahead to next year, it seems likely we will have much deeper reductions from the state than we have in recent years. the state has been heavily relying on borrowing and other short-term solutions to bring their own budget into alignment, and seems much more appetite at the state to make hard decisions that will result in positive things for the state going forward, which will create much more negative consequences for those who rely on state
funding, and that includes us. supervisor wiener: could you even gas and magnitude of what would happen if we had to do all cuts state budget as opposed to some revenue state budget? >> no one has seen what in all cuts state budget looks like it. the government will propose in early may his revised budget and we'll have a better sense of the governor's thinking then. even order of magnitude is hard to estimate. just for way of comparison, governor schwarzenegger's final genworth budget -- final january budget would have resulted in something like $200 million in reductions for san francisco if we back filled all the programs he proposed to cut. the final budget as adopted caused more like $17 million impact on us. the choices the state makes have
profound and incredibly varied consequences for us. supervisor chiu: thank you. >> moving to the spending side of the ledger, salaries and benefits for city employees. we are projecting $110 million increase the coming fiscal year, broken down to wages and benefits. the majority of our labor contracts are closed in the coming year. are estimations of the cost of closed labor contracts the next year are fairly well known. the majority of bargaining units and the city continue to have no change your every year, but continue furloughs and other measures that result in cost savings for the city. the $24.3 million in projected costs of closed labor contracts in the first year is really the result of wages that are
scheduled for police, fire, and nurses in the coming fiscal year. in the years beyond, the second year, there is a significant increase, $83.5 million. we have to send those two years agreements expire and that employees, the furlough days expire and employes will effectively receive just short of a 5% wage increase as these contracts expire. we assume in the third year, a cpi on local contracts. that assumption in the second year will change as the city enters negotiations with our employer organizations next year at this time. on the benefits side, $80 million in cost increases projected for the coming fiscal year. as we have talked about many times before, the majority of that is $60 million increase in
our projected contributions out of the general fund for retirement benefits. $60 million of that t, $57 milln to the local organizations, $3 million to calpers. there are significant increases, driven by the costs and projected continued increases in pension contributions. supervisor chu: just a quick question. he mentioned that -- you mentioned in the fiscal year 2013 budget, the number is driven to expire from labor, so the furlough days and other things that would be done with, that is going back to what it was before? >> exactly. supervisor chu: okay, and the $61.5 million in fiscal years 2013-2014 it is open contracts?
>> and at that time, pretty much every labor contract in the city will be open. isupervisor chu: if you do a comparison between page 9 and page 4, on page 9 we see the labor costs, broken down by salaries and benefits and fringe benefits. if we look at page 4, about what the revenue expectations are, for example, fiscal year 2011- 2012, it is expected to be $30 million increase, but on the fringe benefit alone if we don't change a thing there, we expect the expenses to be $80 million. on that alone, we expect to outpace our revenues significantly. in 2012-2013, we expect revenues to go up, but the health and dental retirement benefit expenses are $54 million. we're not even talking about
salaries and benefits, but just the fixed costs of retirement benefits and health benefits that we provide, we are already outpacing revenue coming in. about that is correct. -- >> that is correct. as you know, the chartered drives a number of contributions, from bass lines and different set asides that the voters have adopted. those include the most significant, $16.4 million increase heading into next year for the city's contribution to the public education and retirement fund. it is because the city pulled the trigger on that measure and the career that allows us to reduce the funding allocated to the schools by 25%. the report a sense that we float the report a sense that we float back to the status q